Recent Fed Speak and Market Reaction
It was a win for the bulls yesterday as mega-cap technology stocks gave better than expected forecasts and the Federal Reserve announced it could slow the pace of its hiking campaign at some point in the future after delivering its much anticipated 0.75 percentage point rate increase. The S&P 500 gained 2.62% to close at 4,023.61, the Nasdaq soared 4.06% to 12,032.42, and the DJIA popped 436.05 points, or 1.4%, to 32,197.59. Tech shares led gains after better-than-feared guidance from Alphabet and Microsoft reversed the QQQs overnight and helped fuel the rally. Volume picked up late in the session which is a bullish sign, rising on the Nasdaq and the New York Stock Exchange compared to yesterday. The Russell 2000 was up 43.09 or 2.39% today, and we will need this market to come back alive as well. Small cap strength is a sign of a bullish market. All 11 S&P Sectors were in the black with technology, communication services, and consumer discretionary leading the way up 5.11%, 4.29%, and 3.85% respectively. The yield on the benchmark 10-year Treasury note inched up one basis point to 2.80%. Interest rate stabilization is bullish equities, and it has been happening for a few weeks. West Texas Intermediate crude oil rose more than 3% to just over $98 per barrel, and we think that oil may trade in a range now with rates. If so, that would be bullish for equities as well. The magic phrase today though was the key driver, and it came from Jerome’s mouth directly. The Fed Chairman said ABRACADABRA in Fed speak when he said, “It likely will become appropriate to slow the pace of increases while we assess how our cumulative policy adjustments are affecting the economy and inflation.” As we also constantly remind you interest rates and Fed Policy have an ENORMOUS impact on capital markets. Finally, we then needed to see price action in the stock market get better. This is really the most bullish of all though because they are finally recognizing there are two sides of this: there is a growth tradeoff to fighting inflation. There are also market tradeoffs, hence the down 20% at one point. That recognition is something we had today that we did not hear before. The S&P 500 is now firmly above its 50-day moving average. Our next significant resistance is the 410 area so we should push up to that level in the next few trading days. From there, the 200-day moving average comes into play at 430 in a continued move up. This is good and it may start to become more constructive on the upside.
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